A report from the U.S. government's Energy Information Administration showed an unexpected fall in U.S. crude inventories. But EIA reported increases in distillate inventories and gasoline supplies on the U.S. East Coast, which includes the New York harbor.

"The report is mildly bullish, but it's not going to matter. It's going to be overshadowed by everything else that's going on right now," said Mark Waggoner, president at Excel Futures in Oregon.

"The U.S. has lots of crude oil. The lack of demand out of China is also going to weigh quite heavily."

Brent crude, U.S. crude and U.S. gasoline were down around 2 percent, with U.S. heating oil approaching a 2.5 percent fall. U.S. crude and Brent crude were each off more than $2 per barrel at the lows of the day.

Stephen Schork, the editor of The Schork Report, said a key technical support for Brent was broken at $97.91. "Once we hit that level, it probably triggered a bunch of selling," said Schork.

"This is all continuation selling - the bulls are getting stopped out and bears are stepping in to fill the void," Schork said

Brent has fallen in 10 of the last 12 sessions, losing nearly 12 percent in its biggest 12-day loss since June 2012.

Oil's fall comes as part of a wider commodities rout triggered by data released Monday showing growth in China, the world's second-largest oil consumer, had slowed unexpectedly in the first three months of 2013.

The U.S. dollar strengthened against the euro and the yen after comments from a European Central Bank official stoked speculation of an interest rate cut in the euro zone. A stronger dollar makes dollar-priced commodities more expensive.

However, gasoline stocks on the U.S. East Coast are up 5.3 million barrels over the same time last year.

Distillate stockpiles, which include heating oil and diesel, rose 2.36 million barrels, compared with forecasts for a draw of 500,000 barrels.

Stocks at the Cushing, Oklahoma, crude storage hub rose 1.08 million barrels to 51.15 million. Crude imports fell 289,000 barrels per day to 7.39 million bpd.

"There was nothing in this report that was really bullish. So now the market is deferring to what we're seeing in the outside markets such as the dollar and the stock market, which has been under pressure," said Phil Flynn, analyst at Price Futures Group in Chicago.

"Deteriorating Demand Projection"

The EIA report follows a cut in global growth projections by the International Monetary Fund (IMF), for this year and next.

Gold later edged back, although other metals such as copper continued to decline.

"At the moment the oil complex is in a technical downtrend with the fundamentals being driven by a deteriorating demand projection in a robust supply environment," said Dominick Chirichella of Energy Management Institute.

The head of the International Energy Agency, Maria van der Hoeven, said the oil price decline was proof that the market was adequately supplied.

"For now there is no immediate reason - other than short covering - to suggest that oil prices are ready for a strong move to the upside," said Chirichella.

While further weakness in Brent crude cannot be ruled out, oil prices are unlikely to stay below the $100 a barrel mark past the second quarter, Barclays said in a note on Tuesday.

A pick-up in hedging activity from consumers who have been waiting on the sidelines for better entry points for their hedging programmes could help support prices, it added